This is an entirely free service. No payments are to be made. Also send me The Ultimate Guide to Profiting From Derivatives and sign me up for Profit Hunter,a free newsletter that focuses on identifying short term money making opportunities.Download NowSubscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.

Shriram Transport Fin.: Niche presence undisturbed

Jan 23, 2009

Performance summary

Net interest margins drop to 7.3%, from 7.8% in 9mFY08 due to higher proportion and cost of borrowing from banks.

Other income drops by 30% during the quarter due to lower proportion of income from securitisation.

Net margin for the quarter falls by 1.5% on the back of higher provisioning costs. For the nine month period, the same improves by 0.6%.

Rs (m)

3QFY08

3QFY09

Change

9mFY08

9mFY09

Change

Income from operations

6,543

9,694

48.2%

16,888

26,799

58.7%

Interest Expense

3,728

5,542

48.7%

9,032

14,512

60.7%

Net Interest Income

2,815

4,152

47.5%

7,856

12,287

56.4%

Net interest margin (%)

7.8%

7.3%

Other Income

229

161

-29.7%

408

469

15.0%

Other Expense

867

1,293

49.1%

2,327

3,837

64.9%

Provisions and contingencies

507

752

48.3%

1,651

2,064

25.0%

Profit before tax

1,670

2,268

35.8%

4,286

6,855

59.9%

Tax

562

776

38.1%

1,506

2,270

50.7%

Profit after tax/ (loss)

1,108

1,492

34.7%

2,780

4,585

64.9%

Net profit margin (%)

16.9%

15.4%

16.5%

17.1%

No. of shares (m)

191.1

203.5

Book value per share (Rs)

105.0

P/BV (x)*

1.8

* Book value as on 30th September 2008

What has driven performance in 3QFY09?

Although the economic meltdown, poor demand for commercial vehicles and firmness in interest rates did have an impact on commercial vehicle loans, the demand for pre owned vehicles continued to remain far stronger than that for new vehicles. STFC reported a drop of 25% in overall disbursements in 9mFY09, primarily due to 79% YoY fall in disbursement for new vehicles. The company’s assets under management (AUM), however, grew by 36% YoY and remained well balanced in terms of mix of new and pre-owned vehicles. The institution maintains a loan to value ratio of 65% and intends to get into the old tractor financing and freight bill discounting businesses.

Pre-owned vehicles save the day

(Rs m)

3QFY08

% of total

3QFY09

% of total

Change

Disbursements

30,540

23,043

-24.5%

New CVs

8,537

28.0%

1,756

7.6%

-79.4%

Pre owned CVs

22,003

72.0%

21,287

92.4%

-3.3%

9mFY08

% of total

9mFY09

% of total

Change

Assets under management

167,855

227,957

35.8%

New CVs

48,667

29.0%

64,743

28.4%

33.0%

Pre owned CVs

119,188

71.0%

163,214

71.6%

36.9%

Truck receivables

131,479

186,666

42.0%

With STFC’s borrowing profile now largely tilted in favour of banks, the rise in cost of funding took a toll on the company’s net interest margins which declined by 0.5% (NIMs at 7.3% in 9mFY09). The same, however, continue to remain well above our estimate of 6.9% for the full year FY09. The institution marginally increased its proportion of retail borrowing due to the liquidity crunch in the banking sector and derived 85% of its funds from the retail segment in 3QFY09 as against 83% in 3QFY08. Going forward, with better credit rating and increased institutional funding the NIMs are expected to remain in the range of 7.5% to 8%.

STFC’s business model continues to over-rely on the vehicle financing industry as most of the other (fee) incomes are derived from the securitisation of assets. Although as a practice, the company has reduced securitisation over the years, the tight liquidity conditions seems to have induced the company to go in for higher securitisation this quarter. Fee to total income stood at 0.1% in 9mFY09 against 0.4% in 9mFY08. Nevertheless, the company has started vending debit cards and mutual fund products through its sales points and these are expected to add to its revenues going forward.

STFC’s cost to income ratio marginally increased from 28.2% in 9mFY08 to 30.0% in 9mFY09. Further, with the company having recruited nearly 383 additional employees and added 8 branches in the last quarter, the costs are expected to escalate in the medium term.

Although the gross NPAs increased marginally to 1.9% from 1.6% in 9mFY08, the Net NPAs declined to 0.9% in 9mFY09 from 1.0% due to higher provisioning.

What to expect?

At the current price of Rs 191, the stock is very attractively valued at 1.0 time our estimated FY11 adjusted book value. STFC’s niche presence in the high-yielding pre-owned CV financing business earns it an edge over its peers in terms of net interest margins and provides substantial cushion in an economic downturn. Further, the NBFC’s asset valuation and loan recovery skills are verified in the low delinquency levels. We also derive comfort from the fact that the company’s asset growth as well as margins so far have been well above our estimated levels. We retain our view on the stock.

OTHER USEFUL LINKS

MARKET STATS

ABOUT EQUITYMASTER

Since 1996, Equitymaster has been the source for honest and credible opinions on investing in India. With solid research and in-depth analysis Equitymaster is dedicated towards making its readers- smarter, more confident and richer every day. Here's why hundreds of thousands of readers spread across more than 70 countries Trust Equitymaster.

All rights reserved. Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.